After getting knocked significantly lower during 2022, shares in Nvidia (NASDAQ:NVDA) have made a stunning comeback so far in 2023. Year-to-date, NVDA stock is up by around 78.5%, driven by the recent wave of “A.I. mania.”
With Nvidia supplying the GPUs used to power OpenAI’s ChatGPT platform, investors are on the money for buying NVDA to play this trend.
That said, when skeptics say that recent “A.I. mania” is little more than “A.I. hype,” and thus unsustainable, they may be right to some extent. The market may be overdoing it right now with A.I. stocks.
That doesn’t mean you need to take a hard pass on NVDA. Let’s dive in, and see why now may be the time to add this stock to your watchlist.
This Chip Maker’s A.I. Catalysts are the Real Deal
In an article last month about another popular A.I. stock, C3.ai (NYSE:AI), I argued that its A.I. catalysts were the real deal. The same applies here with Nvidia. The potential upside from artificial intelligence for this company goes way beyond the continued rise of ChatGPT.
Rather, with ChatGPT kicking off an A.I. arms race amongst big tech, the chip maker is well-positioned because it sells the shovels for this digital gold rush. That’s not all. Besides being poised to be a major provider of A.I. hardware, Nvidia is looking to get into the software side of things as well.
As the company stated in its latest quarterly earnings release, plans to launch A.I. cloud service offerings are in the works. In time, this could provide a steady, high-margin revenue stream for Nvidia, which historically has had to contend with the cyclicality of the semiconductor space.
Again though, while the market isn’t making a mountain of a molehill out of these A.I.-related tailwinds, some argue that these are already baked into the NVDA stock price, following its big surge this year.
‘A.I. Hype?’ Yes, But it’s not a Deal Breaker
Alongside bullish commentary about Nvidia, one can easily find more skeptical takes about future prospects for the stock. I’ll admit that those laying out the bear case make a few valid points. For one, their argument that “A.I. hype” has made shares pricey make sense.
After its surge over the past two months, NVDA stock is once again trading at a high earnings multiple. Based on analyst forecasts calling for earnings of $4.43 per share this fiscal year (ending January 204), at nearly $260 per share today, NVDA trades for around 58.7 times forward earnings.
Not only that, there continues to be some uncertainty regarding near-term results. A.I. demand may be booming, but as analysts at KeyBanc argued back in January, demand among key end-users of Nvidia’s chips has kept softening. Taking both the valuation and tech slowdown concerns into account, chasing the NVDA rally is probably not the best move.
While the ongoing “A.I. hype” about this stock warrants caution, it’s not a deal breaker. If concerns about these two factors escalate, or if said hype reaches a short-term peak, a buying opportunity may emerge.
Although it may be best to take one’s time before entering/adding to a position in NVDA, you need not wait for shares to cough back all of their latest gains.
As Nvidia’s A.I. catalysts have perhaps created a new floor, a return to prices under $160 per share may not arrive. Yet if there’s any moderate level of pullback with the stock, seize the opportunity.
The rise of A.I., coupled with a rebound in demand for the company’s existing lines of business, could cause massive earnings growth over the next few fiscal years. This kind of growth could drive the stock back to prices north of $300 per share, on its way to new all-time highs.
Weighing near-term risk against long-term potential, here’s my verdict: monitor NVDA stock, and pounce on any major weakness.
NVDA stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.